Filed Under:Carrier Innovations, Regulation/Legislation

Workers' Comp Could Come Up Short In Health Reform, But Benefits Also Cited

Health care reform will change much of the medical services delivery system as we know it, but its impact on workers' compensation, while likely significant, will be indirect and accidental--as well as both positive and negative.

Worries that the feds will take over workers' comp are unfounded. Congress has plenty on its plate without thinking about an infinitesimal industry that represents less than 2 percent of U.S. medical spending.

In the context of all the politicking around energy policy, the financial services reform initiative, nuclear arms reduction treaties, the Middle East peace process, as well as the wars in Afghanistan and Iraq, workers' comp is not, and will never be, worthy of any attention on Capitol Hill.

Likewise, the Centers for Medicare and Medicaid Services will be too busy expanding Medicaid by a third, revising hospital reimbursement, changing physician compensation and rewriting Medicare Part D to think about workers' comp.

Group health insurers and managed care companies, focusing on the influx of tens of millions of new members, are not likely to dedicate resources to new workers' comp programs. However, while some aspects of reform will ultimately--if indirectly--benefit comp, it is just as likely that others will increase workers' comp medical expenses.

Let's start with the bad news.

Hospital and facility expenses account for about a third of workers' comp medical spending--roughly $10-to-$12 billion annually. That number is likely to go up.

Expect Medicare to reduce reimbursement to hospitals. While the major hospital advocacy groups have "committed" to cutting costs by $160 billion over 10 years, at the end of the process I expect they'll have to pony up significantly more.

If and when these reductions go into effect, hospitals may well look more closely at other payers as they seek to make up for lost revenue. And workers' comp is a very soft target--while it makes up about 2 percent of hospital revenues, it provides about 16 percent of margin.

And while CMS (and in the case of Medicaid, state agencies) can dictate pricing for Medicare and Medicaid, Wellpoint, United HealthGroup, Aetna et al cannot. If those huge health care service buyers have little leverage, imagine how ineffective workers' comp payers and networks will be in negotiating with facilities.

Meanwhile, increased demand for physician services, particularly in rural areas, may lead to extended delays in getting initial treatment, especially in states with low fee schedules and high administrative loads. The current state budgetary crises, coupled with the significant expansion of Medicaid resulting from implementation of the reform bill, might also lead to reductions in staff at many state regulatory agencies.

This may lead to delays in many comp-specific processes and snarled administrative procedures. Disputes will take longer to settle, rulings will take longer to be handed down, and clarifications on rules and laws might be delayed.

The main area directly affected by reform is the tax on medical devices and supplies, from bed pans to spinal implants. Depending on the size of the manufacturer, companies face a 2.3 percent excise tax on most products starting in 2013. No doubt, the tax will pass through to payers in the form of higher prices.

Don't make too much of this increase, as supply and device costs are a relatively small fraction of total workers' comp medical spending, and, more to the point, these costs are either addressed via fee schedules already or so inflated that an additional 2.3 percent upcharge isn't going to make an appreciable difference.

Pharmacy didn't "escape" reform but certainly wasn't dramatically impacted. While Congress (so far) failed to give CMS the power to negotiate drug pricing with pharmaceutical companies, those companies went ahead and raised brand drug prices in 2009 by more than nine percent.

Workers' comp payers will see an increase in drug prices over the short term, and if CMS does gain the power to negotiate in the future, watch out for potential cost- shifting as manufacturers seek to make up for lost margin by increasing prices to non-governmental buyers.

Will workers' comp claims frequency go up? Conventional wisdom says that when employers do not offer health insurance, employees file more workers' comp claims, and vice versa.

However, a 2005 RAND study: "How Does Health Insurance Affect Workers' Compensation Filing," refutes this, showing that employers that do not offer health insurance do not have more workers' comp claims. Indeed, the opposite is true--employers offering group health coverage tend to see more comp claims filed.

Bear in mind that this is a statistical relationship, not a causal relationship, and it does not mean that providing health insurance causes comp claims to rise.

Claims frequency will probably go up gradually--not because of reform, but because more people will be employed as the economy recovers.

Now for the good news.

Workers' comp is indeed a vulnerable target for cost-shifting. As the number of people without health insurance has increased, the need for providers to make up revenue lost when delivering services to the uninsured has grown more acute.

As the percentage of the population covered by health insurance increases with reform kicking in, there will be much less need for providers to look to workers' comp to make up for revenue shortfalls from charity care service delivery.

Also, in the long run, health care reform should produce improvements in overall patient health, which translates into a healthier work force. Healthier people also recover from injuries and return to work faster.

No longer able to compete by being better at risk selection, group health plans will need to differentiate themselves by managing costs and care. Expect to see them invest more heavily in chronic disease management, better provider assessments and partnerships, data mining, analytics, and electronic health record technology.

These analytic tools will also eventually find their way into workers' comp medical management programs.

Having access to a complete medical history via electronic medical records will equip physicians to better diagnose and treat workers' comp claimants, and help comp pharmacy benefit managers detect and report potential drug interactions.

Lessons learned from group medical management, including more science on what works and what doesn't, will produce better clinical guidelines which are certain to include a lot of emphasis on back pain and the treatment thereof.

Meanwhile, today, health care is delivered episode by episode--diagnosis, care plan, treatment, assessment, and repeat steps two-to-four until the situation is resolved. This episodic model of care will (over time) change to one based on functional outcome management--care focused on returning the patient to functionality and maintaining that functionality.

This will be in large part driven by the growing influence of chronic care and need to develop a better care model to address chronic care--one that will heavily emphasize patient education and monitoring.

It will also require a different location of care, the medical home--NOT a primary-care gatekeeper model but rather a model wherein the physician is tasked with and responsible for coordinating care and educating the patient.

Experts believe this model will be a big part of the solution in workers' comp, as the medical home may well be the dominant model for delivery of care throughout the health system in years to come. Studies indicate the home decreases medical errors and improves the quality of care delivered.

In addition, with more individuals covered under insurance, the need for workers' comp payers to treat underlying health problems along with occupational injuries will decrease.

That means it is more likely an injured worker will be undergoing treatment for their diabetes or hypertension, conditions that today often have to be addressed by the comp payer as they complicate surgery and other therapies. As a result, workers' comp payers won't have to pay for those treatments, and the patient population is likely to be healthier overall.

That would be good news indeed.

Joseph Paduda is the principal of Health Strategy Associates, as well as a frequent speaker on managed care in workers' comp and group health. He can be reached at, and writes a blog at

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